Introduction: Germany and Poland under the umbrella of the Single Market

German-Polish European BLOG

Introduction: Germany and Poland under the umbrella of the Single Market

29 August 2017

After Brexit, Germany and Poland will remain the only proponents of the liberal approach to the Single Market among the largest EU economies. However, while the rule of law constitutes a basic foundation of the Single Market, the Polish government’s internal policy seriously undermines the separation of powers.

Adam Balcer*

In the coming years, the Single Market will probably become a crucial anchor keeping Poland in the EU. Especially taking into consideration how gloomy the perspective of Poland joining the eurozone looks because of the government’s and society’s strong skepticism towards that idea. Moreover, from the point of view of Polish membership in the EU, the Single Market constitutes a fundamental engine of economic growth and modernization of Poland’s economy. In fact, it plays a more important role than the EU funds and agricultural subsidies do. The Single Market also plays a very important role in the German economy and in the German-Polish economic relationship. Poland’s model of economy strongly resembles the German one. Poland’s export of goods and services in relation to the GDP increased from 35 percent in 2004 (the year of accession to the EU) to almost 55 percent. In fact, the above-mentioned indicator is even smaller in the case of Germany, only slightly exceeding 45 percent of GDP and rising by 10 percent since 2004. By comparison, the export of goods and services in relation to the GDP oscillates around 30 percent in France, Italy and Spain. Thanks to the Single Market, Poland and Germany established a very close trade and investment symbiosis. Poland, together with the V-4 countries, occupies a key place in German economy’s value chain as the main subcontractor in the industrial field.

Thanks to the Single Market, Poland and Germany established a very close trade and investment symbiosis. Poland, together with the V-4 countries, occupies a key place in German economy’s value chain as the main subcontractor in the industrial field.

In theory, Germany and Poland could count on the European Commission’s support for maintaining the Single Market. However, closer cooperation between them is hindered by tensions resulting from the Polish government’s internal policy of the consolidation of the executive power that dismantles the rule of law. Moreover, Poland’s defense of the Single Market may easily lose credibility if the Polish government implements its “reforms” which are indirectly targeting the interests of European companies which invested in Poland (e.g. the re-nationalization of Polish media). Unfortunately, the Polish ruling elite started to present the Polish-German economic convergence, which is strongly intertwined with the Single Market, as a blind alley. Jarosław Kaczyński describes Germany as a neocolonial power exploiting Poland economically and suggests that the situation should be changed by diversifying Polish economic ties with non-EU partners. It is very symptomatic that in the governmental Strategy of Development, more than 400 pages long, the EU and Germany are not defined as main engines of the second wave of Poland’s modernization.

It is very symptomatic that in the governmental Strategy of Development, more than 400 pages long, the EU and Germany are not defined as main engines of the second wave of Poland’s modernization.

Certainly, the positions of the EC, Germany, and Poland on the Single Market sometimes collide. For instance, the EC’s amendments to the Posted Workers Directive were rejected by Warsaw as too protectionist. This issue is very sensitive for the Polish economy because Polish posted workers account for the largest number, around one-fourth, of all such workers in Europe. Their share in the Polish employed labor force exceeds 3 percent. The Single Market is experiencing difficult times also because of political developments in the EU. Brexit (the exit of the most free-market oriented big economy) encouraged pro-protectionist policies within the EU, promoted especially by Emmanuel Macron, France’s new president. The closer France’s cooperation with Germany gets, the more concessions towards France Berlin will want to make.

The future of Single Market is strongly correlated with the future of the eurozone. The further integration of the EU members using European currency will contribute to a de facto fragmentation of the Singe Market into first-rank members (the eurozone members) and those of the second rank (non-eurozone countries). A greater coordination of tax policies and the social policy combined with separate funds for the eurozone (de facto its budget) should be taken into consideration as a plausible scenario.

The future of Single Market is strongly correlated with the future of the eurozone. The further integration of the EU members using European currency will contribute to a de facto fragmentation of the Singe Market into first-rank members (the eurozone members) and those of the second rank (non-eurozone countries).

In consequence, Józef Niżnik, the author of the Polish contribution to our blog rightly argues that “Today it seems that the only way to save the principle of cohesion and take full advantage of the single market is to encourage all the Member States to join the core in deepening European integration. In fact, one may well suspect that this is the hope of those countries which are now preparing such institutional change in the EU. Despite the official declarations of the states which now oppose such a prospect, e.g., the Visegrad countries (excluding Slovakia), we can expect that the institutional changes implemented in the EU will compel those countries to see the future of the EU in a different light.” Those non-eurozone members who are very strongly integrated with Germany trough the Single Market (such as Poland) should take into consideration the assessment of our second author, Klaus Bachman, that “outside the eurozone we will see a more and more fragmented Single Market, shaped according to the needs and wishes of the eurozone members, who, thanks to their dominance in the EU institutions, will be free to pass any legislation they wish to.”